Tax implications of capital losses…..

They say that you learn something everyday and thankfully I came across this article this evening because otherwise this may have been the exception. 

In the Washington Post a reader wrote and posed the question, “Is it time to sell some beaten-down holdings for tax reasons, and how do I decide which ones?”

The reader is alluding to a rule which allows an investor to write realized capital losses against capital gains to offset tax liability.  Here are a few provisions in this rule that I DID NOT know until reading the experts’ responses (which can be viewed at these two links: 1 & 2):

-Capital losses may only be used to offset any and all capital gains in the given year + up to $3,000 of ordinary income.

-Capital losses may used to offset current & future capital gains.  Therefore, if an investor incurs $5,000 in capital losses in a given year and only has $1,000 in capital gains they may use $3,000 to offset ordinary income tax liability and $1,000 of future capital gains.

-Keep in mind the “wash rule” which prevents investors from claiming the loss if the same security is repurchased within 30 days of the sale date in which the loss was realized.